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Friday, April 21, 2017

IoT Packaged Solutions and Services Market Momentum

Nearly all segments of the Internet of Things (IoT) market recorded double-digit growth in the fourth quarter of 2016 (4Q16), driving an overall 19.3 percent year-to-year revenue gain to $8.2 billion, according to the latest study by Technology Business Research (TBR).

This market is still evolving. "We expect growth to continue apace as more customers undertake implementations due to the emergence of packaged use cases, standards are adopted and pricing models become more rationalized," said Daniel Callahan, analyst at TBR.

However, despite its growing popularity and market mind-share, cloud services accounted for only a small portion of the total. Software remains a giant part of the IoT market and a sizable portion of the IT vendor's revenue.

According to the TBR assessment, this is due to a large number of legacy implementations and the reality that many customers have not signed on to the costly data transport and compute power necessary when starting on the cloud, focusing on edge instead. In most cases, customers are beginning with experimental implementations on the edge, leveraging software and only moving to the cloud when the ROI is proven.

The experimentation on the edge and the necessity of Hybrid IoT -- the combination of edge and centralized cloud capabilities -- are also delivering ICT infrastructure a more permanent position in the IoT stack, rather than it being a victim of cloud-based IaaS. The ICT infrastructure segment grew 6.6 percent year-to-year in 4Q16 to 10.3 percent of total revenue.

IT services grew 13.5 percent year-to-year in 4Q16 and remains a crucial component of the IoT market due to the necessity of build, run and training services in IoT. However, TBR noted that IT services revenue growth decelerated from 15.2 percent year-to-year in 2Q16.

TBR believes IT services will increasingly be the victim as more prepackaged, low configuration IoT solutions emerge and as AI takes over much of the run aspect.

That said, business consulting grew 28.6 percent year-to-year. TBR reports that business consulting will be less impacted by standardization, prepackaged solutions and AI due to the complex knowledge and creativity necessary to guide transformation.

The security and connectivity segments, necessary aspects of an IoT solution, grew 28.2 percent and 16 percent year-to-year, respectively. Both of these segment's revenues scale extremely close to IoT adoption -- as more devices and sensors are deployed by customers the more security and connectivity are required.

Based upon revenue, the top three vendors were IBM, Microsoft and Cisco. These vendors, which registered nearly $2.4 billion combined, led the market for numerous reasons, including:

They are market leaders in defining and acting on an IoT go-to-market strategy and did not hesitate on investing in M&A activity to build advanced capabilities, including in AI, machine learning, platform infrastructure and vertical expertise.

Each chooses to brand themselves as, or act as through partnerships, a full-service or multi-line vendor. This simplifies customer interaction, an extremely important tenet in IoT, and increases the ability for the vendors to cross-pollinate.

All three have a deep-rooted presence in the enterprise, large legacy customer bases and brand awareness for market-leading technology. All have wide partner networks.